1605100
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Flashcards by Samantha Seah, updated more than 1 year ago
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Created by Samantha Seah
over 10 years ago
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| Question | Answer |
| Allocative Efficiency | where P=MC ( the utility people get from the last unit, is equal to the value of factors employed to produce that unit./ resources are allocated in such a way that the right quantity of every commodity is produced.) A situation in which it is impossible to change the allocation of resources in such a way as to make someone better off without making someone else worse off. |
| X-Inefficient | Organisational complacency due to the lack of competition. Result in the firm's little/ no incentive to keep costs low. (operate along cost curves that are higher than necessary.) |
| Dynamic Efficiency | A situation which firms continually develop more efficient techniques or innovate over time. (Product &/ Process innovation). = better product quality and greater variety which adds to consumer satisfaction. Innovation may also bring forth cost efficiency, and cost savings may translate to lower consumer prices that increase welfare. |
| Productive Efficiency | A situation in which the firm minimises the cost of producing any given level of output in the long run. It is achieved when= firms produces along any point on the LRAC curve. * a profit maximising firm is necessarily productively efficient, since profit maximisation requires the firm to minimise its costs for producing that level of output. In this respect, all firms regardless of market structures are productively efficient. |
| Economies of scale & cost savings | Where large scale production allows firms to reap EOS that lower unit cost of production which translate to lower prices for consumers &/ research into product development that increases product quality & variety.(adds to consumer satisfaction) |
| Characteristics of Oligopoly | 1. - Few dominant producers/firms -mutual interdependence 2. Homogeneous or Differentiated product -PURE oligopoly: homogeneous product - IMPERFECT oligopoly: differentiated product (real & perceived differences) 3. Type of knowledge - Perfect knowledge: prices - Imperfect knowledge: reactions of rivals 4. Significant Barriers to entry - typically capital intensive with significant EOS. (firms tend to remain large.) |
| Competitive Oligopoly | * assumption: rival firms will match each other's price reductions, but not each other's price increases. - kinked demand curve theory: marginal revenue curve is typically disjointed. - gap of discontinuity - explains PRICE RIGIDITY in an oligopolistic market. > considerable cost changes do not always result in price changes. > lack of competition in competitive oligopoly. > dominance of non-price competition. @ wastage of resources on advertising. |
| Collusive Oligopoly | * The Cartel Theory. (formal organisation of firms that reduces output and increases price in an effort to increase joint profits. - corporate to set monopoly price and maximise their collective profits. %PROBLEMS: - difficulty in formation - cheating - breakdown on collusion |
| Market Failure | Free market does not provide the right mix of goods/ socially optimum amount. = market not allocating resources efficiently. =society's welfare not maximised. |
| CAUSES of market failure | 1. market imperfections( market dominance, imperfect knowledge, immobility of factors of production) 2. non-provision of Public goods, 3. presence of externalities in consumption of goods & services. 4. inequality in income distribution. |
| Public goods | = provided and consumed on a collective basis. = once provided, it would confer the benefits to all. 1. non-rivalry in consumption -the consumption of the good by one party does not reduce the amount available to others. (MC=0) 2. non-excludibility - there is no effective way to restrict the benefits of such goods to only those who pay for them. it is available to all regardless of whether or not the individual pays for the public good. * consumer have no incentive to pay since it is 'free'. consumers are able, but unwilling to pay (free-rider problem), and will conceal their demand from the producers and not pay for its consumption. therefore, free market will not provide public goods result in complete/total market failure. |
| Externalities | An externality is a benefit or cost arising from the production/consumption of a good or service that falls on third party and is not taken into account by producers or consumers of the good. (spillover/ third party benefits/costs.) |
| Merit goods | goods and services deemed to be socially desirable for the welfare of the people by the government and which the government feels that the people will under-consume if left to the free market. |
| Demerit goods | goods and services that are deemed to be socially undesirable for the welfare of the people by the government and which the government feels that people will over-consume in the free-market. |
| Sustained economic growth | an increase in the real output of a country/ an increase in an economy's capacity to produce goods and service. |
| Gross Domestic Product (GDP) | the total market value of all final goods and services that are produced within a given country in a given period of time, usually 1 year. |
| Methods of calculating GDP | 1. product/ output approach 2. income approach 3. expenditure approach. |
| REAL vs NOMINAL GDP | REAL: - constant prices. - adjusted for inflation NOMINAL: - current prices. - NOT adjusted for inflation - market prices prevailing at that time. |
| Gross National Product (GNP) | the total monetary value of all final goods and services produced by her nationals over a given period of time, regardless of where production takes place. |
| GDP vs. GNP | GDP: measures economic economic activity. GNP: measure the economic welfare (SDL) of citizens of a country. |
| Disposable Income | income that is available to the households or individuals, for spending on goods and services (or saving.) |
| Unemployment | A situation where people who are actively looking for work (willing and able to work) are unable to find suitable jobs. |
| Natural rate of unemployment= non-accelerating rate of unemployment (NAIRU) | that level of unemployment which exists when the economy is at full employment. |
| Structural unemployment | unemployment arising from changes in the structure of the economy which can cause a mismatch between the jobs available and the skills of the unemployed. |
| CAUSES of structural unemployment | 1. changes in the methods of production (technological unemployment) 2. changes in business costs (globalisation) 3. permanent changes in the pattern of demand for goods and services. |
| Cyclical/demand-deficient unemployment | unemployment that arises due to changes in the business or trade cycle. = Keynesian unemployment |
| Frictional Unemployment | unemployment that comes about when people move between jobs and locations. |
| Seasonal unemployment | periodic unemployment created by seasonal variations in some industries or at certain times of the year. |
| Inflation | a situation where there is a sustained (persistent), and inordinate (excessive) increase in general price level over time. |
| Protectionism | A policy of sheltering domestic industries from foreign competition in domestic markets. |
| Specific tax | tax calculated as a fixed amount of tax per unit of imported product. |
| Ad Valorem tax | tax that is expressed as a percentage of the price of imports at the point of entry. |
| Dumping | the sale of goods abroad at a price that is below the marginal cost of production/ below the price at which the product is sold for in the domestic market. |
| Globalisation | the growing interdependence of countries worldwide through increasing volume and variety of cross border transactions, largely in goods & services, free flows of international capital, spread of technology, and labour movement between countries. |
| WHY globalisation? | 1. Elimination of trade barriers. 2. Potential for economic growth. 3. Harnessing technology. 4. Removal of restrictions on labour flow. |
| Trade Diversion | occurs when lower cost imports from outside the free trade area or customs union are replaced by higher cost imports from another union member. * shift in the pattern of trade from low-cost world producers to a higher cost FTA member. |
| Trade Creation | occurs when some domestic production in a member country is replaced by lower costs from another member country. - it results from greater specialisation in accordance with the principle of comparative advantage. |
| THEORY OF INCOME AND EMPLOent determination: - Keynesian approach (equilibrium Ny) Changes in Ny due to changes in AR/AD. | < NEXT > |
| Factors affecting C | - distribution of income - accessibility to credit and interest rate - govt policy (disposable income) - expectations of employment, income and prices. |
| factors affecting I | - changes in Ny - MEC vs. interest rate - technological changes - business expectations - govt policy - business cost |
| Factors affecting (X-M) | - relative income - relative prices of Xs and Ms - relative quality of X and Ms - changes in tastes - exchange rate |
| 2. AD-AS approach: equilibrium real Ny. - changes in equilibrium Ny due to changes in AS (Factors affecting AS | - prices of resources - availability of resources - productivity of resources - improvement in technology |
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